1. Field of the Invention
The invention generally relates to data processing systems and methods, and more particularly to systems and methods for managing futures contracts that are based on baskets of credit default swaps as underlyings, and for managing bundles of constructs that may individually fail.
2. Description of the Related Art
Many techniques exist where a bundle of constructs is used that may individually fail. Constructs may be hardware arrangements in computer systems or other automated systems, or may be software routines. It is further well known in the art that even more abstract constructs exist such as a conditional relationship between physical or non-physical entities.
Any such construct may fail, in the sense that the task or function assigned to that construct is not (completely) fulfilled. For instance, a hardware component may break, a software routine may dysfunction or even stop to be performed, or a condition can lead to negative results or can be rendered void.
Another field where such techniques can be applied to is the valuation of futures contracts that are based on a basket of credit default swaps as underlyings. Credit default swaps are the most commonly traded credit derivatives. A credit default swap is a contract where one party (the “protection seller”) receives a premium from another party (the “protection buyer”) for assuming the credit risk of a specified obligation. In return for this premium, the protection buyer will receive a payment from the protection seller upon the occurrence of a credit event.
US 2005/0108128 A1 describes a technique for repetitively determining a resource amount for counterbalancing the transfer of a failure risk pertaining to a bundle of constructs that may individually fail. A data storage is provided for storing reference values of the bundle of constructs for distinct individual time instances during the resource amount determination. The reference values indicate a value of a respective reference construct or a value of a reference bundle of constructs. There is further provided a calculation unit connected to the data storage for calculating a value of the resource amount for an individual time instance based on the reference values.
Generally considering bundles of constructs, any failing construct may be separated from the bundle. For instance, a failing hardware component may be separated from other hardware elements, and a failing software routine may be separated in the sense that the remaining software continues to work. In the example of a basket of credit default swaps, the credit default swap having failed may be removed from the basket.
US 2005/0108145 A1 describes a technique for managing bundles of constructs that may individually fail. Each bundle has a repetitively updated resource amount for counterbalancing a transfer of a failure risk pertaining to the respective bundle. Construct data is stored and a value of the resource amount is calculated for an individual time instance based on the construct data. It is determined whether a construct of a first bundle has failed. If not, a value of a resource amount for the first bundle is calculated, but if a construct has failed, a second bundle is generated that includes all constructs of the first bundle except for the construct having failed, and a value of a resource amount for the second bundle is calculated. Furthermore when a construct of the first bundle has failed, a value of a resource amount for the failed construct is calculated, while the first bundle is disregarded.
US 2005/0144104 A1 describes a technique for valuing a bundle of constructs that may individually fail, in case of a separation event causing the bundle of constructs to separate a failing construct from the bundle. A present value determination unit applies a predefined model to determine a present value of the bundle of constructs after having separated the failing construct from the bundle. Further, a static value determination unit determines a static value by reducing a static base number each time a separation event occurs. Furthermore, a calculation unit calculates a value of the bundle of constructs based on the determined present value and the determined static value, wherein a sum of the determined present value and the determined static value is calculated.
While the conventional techniques provide advantageous approaches for dealing with bundles of constructs where individual constructs fail, it is nevertheless sometimes found to be detrimental that such failure events occur in bundles at all. This is because the overall stability of a computer system and data handling environment dealing with such bundles of constructs may be influenced. For instance, if a failing hardware component is to be separated from other hardware elements, this may require shutting down the hardware so that the entire system is dysfunctional for a given time interval. Similarly, if a software routine is failing and needs to be separated, it may be necessary to stop certain routines from being functioning so that the system goes out of service until the separation work is done. In the example of basket of credit default swaps, removing a failing credit default swap from a basket may likewise lead to temporary data handling instability situations, although removing failing constructs from bundles generally increases reliability. However, the act of doing the separation work may lead to instability situations with respect to the data handling and may reduce, for a given time, reliability.